G’day Folks,
As we start to close out the year, I wanted to give a quick market update before we all close our laptops, and enjoy time away from the charts with friends and family this Christmas.
Today’s post will be a brief market update for Paid subscribers covering the Bitcoin pullback. We’re also releasing the latest edition of the Rough Consensus podcast with Jeff Walton (@PunterJeff) for all subscribers, covering our thinking about MicroStrategy. We hope you enjoy it!
Jeff was very early to the MSTR trade, and has done an extraordinary amount of work thinking through the problem. I am a huge fan of analysts who do the Proof of Work, and as we know in Bitcoin, the obvious answer is often not the correct one.
We analyse the strategy that Saylor is putting into play, as well as discuss the many nuances of the various metrics and models for thinking about the MSTR trade. We cover how we think about this asset in both bull and bear markets, and why it creates such a remarkable level of confusion amongst market commentators.
I’m still very early in my MSTR journey, but I find it a truly fascinating motivator for helping me process how financial markets really work under the hood.
Wishing all of our subscribers a very Merry Christmas, and we will see you soon!
Premium Members will find the written market update below. Consider upgrading to premium today to unlock the rest of the content!
Disclaimer: This article is general in nature, and is for informational, and entertainment purposes only, and it shall not be relied upon for any investment or financial decisions.
Quick Christmas Update
We finally have a decent pullback underway, and I for one, am very happy for it. The more time, process, and corrections we have throughout this bull, the more stable it is, and the higher we can go.
Applying a simple Fibonacci retracement since the chopsolidation low show a price of $86k as a key area of interest. We have the -38.2% retracement lining up with the STH cost basis, and this is an expected level for price to retest during uptrends.
Now we may or may not get a pullback to that level, but I think it is fairly likely. Check the HODLer has capital ready to snag some coins if we do get there.
This pullback is working to cool off STH-MVRV via two mechanisms:
Price is correcting (lowering the numerator).
Profit taking (which equals new demand) is causing in STH coins to have a higher average cost basis (increasing the denominator).
STH-MVRV retesting 1.0 is a common occurrence in bull markets, and is more often than not an ideal point for DCA HODLers to step in.
Note that in the 2023-24 cycle, we’ve traded below 1.0 for a few weeks at a time, so keep this in mind if we go below $86k (I won’t be panicking if we do, that’s for sure).
STH-SOPR is also moving sharply back towards 1.0, which is awesome to see.
Remember, the ONLY cohort who can possibly be taking losses in price discovery are Short-Term Holders. When STH-SOPR trades below 1.0, it means those top buyers are starting to capitulate out in panic (a little blood in the streets).
Short, sharp retests below 1.0 are what we want to see. The sharper the reversal, the more likely we have achieved a proper washout of the weak hands. More protracted periods below 1.0 are not great, but that isn’t my base case expectation for now.
Funding rates have also cooled off on an adjusted basis. This modified funding rate tries to account for the natural positive bias exchanges use as a default setting. The reason they do this is because markets are generally biased towards people going long, and this creates an incentive at all times for market makers to offer sell-side liquidity.
Cooled off funding rates mean a lot of the excess speculative bias is clear, and this is no surprise over the holiday break.
Bitcoin price action tends to go to sleep in December, and nobody wants to hold a highly leveraged position open over low liquidity trading sessions.
There is still a net long dominance in liquidation volumes, so this may mean we’re not completely flushed out yet. Perhaps another leg lower is what it will take to clear the books, and give us a fresh table to start 2025 with.
Concluding Thoughts
When I combine the above metrics, we have the following setup:
STH cost basis lines up with the -38.2% Fib retracement at around $86k.
STH-MVRV and STH-SOPR are both cooling off, but could cool off a bit more.
Funding rates are no longer excessively long, which is expected over Xmas.
Liquidations are still long dominant, but it wouldn’t take much to clear the books.
Overall, this looks like a typical bull market pullback so far. There isn’t any clear sign of nasty deterioration, and even though things are a little frothy in wider markets, I’m not sure it’s any cause for macro doomerism.
Check the HODLer took a little nibble at around $95k as an early Christmas gift, but I still have most of my dip buying capital ready to go. I’d love to stack more in the mid-80ks, and will do my part to hold that line.
I still expect choppy conditions for a few weeks, and I don’t see much reason for anything too explosive. I’m keeping an eye on how we trade into 2025, as I think all markets could experience some volatility as the world adjusts to the incoming US administration.
For now, I recommend everyone close the laptop, and enjoy your holiday break. Bitcoin, markets, and the charts will be here when we all get back. Recharge, refresh, and spend quality time with the people who matter to you most.
The only thing more scarce than Bitcoin is your time, and that is best spent with the people you love the most.
Merry Christmas folks, and we’re looking forward to a cracking 2025 with you all!.
Thanks for reading,
James & Alec
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